Definition of Lindahl Equilibrium:
A circumstance where the amount produced and consumed of a public good is adjusted to the price that individuals are able and willing to pay for that specific good. Substantial adjustments need to be made between the supply, demand and cost of the public good before the point where a balance or equilibrium is reached where all these elements are in agreement. The end result is that the public good or public need is met by balancing the price to one that private individuals can pay.
Lindahl equilibrium is a state of equilibrium in a quasi-market for a pure public good. Like a competitive market equilibrium, the supply and demand for the good are balanced, in addition to the cost and revenue to produce the good. Lindahl equilibrium depends on the possibility of implementing an effective Lindahl tax, first proposed by the Swedish economist Erik Lindahl.
At Lindahl equilibrium, three conditions must be met: every consumer demands the same amount of the public good and thus agrees on the amount that should be produced, consumers each pay a price (known as a Lindahl tax) according to the marginal benefit they receive, and the total revenue from the tax covers the full cost of providing the public good. Reaching Lindahl equilibrium requires the implementation of a Lindahl tax. .
How to use Lindahl Equilibrium in a sentence?
- Achieving Lindahl equilibrium require the implementation of a Lindahl tax, which charges each individual an amount proportionate to the benefit they receive.
- Lindahl equilibrium is a theoretical construct because various theoretical and practical issues prevent an effective Lindahl tax from ever actually being implemented.
- Lindahl equilibrium is a theoretical state of an economy where the optimal quantity of public goods is produced and the cost of public goods is fairly shared among everyone.
Meaning of Lindahl Equilibrium & Lindahl Equilibrium Definition